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Chpt 10 TVM

RUJUKAN

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Nurul Hasnyta Hamsani
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8 views

Chpt 10 TVM

RUJUKAN

Uploaded by

Nurul Hasnyta Hamsani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Time Value of Money

1.Interest

Simple Interest = principal x rate x time , I =PRT

Compound interest= principal( 1 + r)n , n=time , r=interest rate

2.Cashflow/Payment/Receipt

a.Single cashflow

b.Annuity; series of the same amount of cashflow that occurs in period with the same interval

Formula:

A.Single Payment:

1.FV = PV( 1 + i)n...compounding present value to the future, single cashflow/payment

EG. ( 1 + 0.1)14 =3.79749833 , this is the interest factor, eg the interest rate is 10%

Express when doing manual: FV=PV(1 + 0.1)14

Express the equation when using the table: FV=PV(fvif,10%,14)

=PV(3.7975)

2.PV=FV(1 + i )-n , single cashflow/payment

PV=fv[1/(1 + i)n]

=fv(1 + 0.1)-14

=fv(0.2633)

PV=FV(pvif,10%,14)

Interest factor;n=14,i=10%, 0.2633333....

3. i)Future value of an ordinary annuity

FV =A [( 1 + i)n – 1]/i, ordinary annuity...A=Annuity, ordinary annuity is payment/cashflow incurred at the


end of each period/interval

Eg.10% ,n=14

FV=A(FVIFA,10%,14)

1
Interest factor; [(1 + 0.1)14 – 1]/0.1 =27.975

ii)Future value of an annuity due from the Interest factor table

FV= A {[( 1 + i)n – 1]/i }x ( 1 + i), annuity due...* means multiply, annuity due is the payments/cashflow
incurred at the beginning of each period/interval

= A {[( 1 + 0.1)14 – 1]/0.1 }* ( 1 + 0.1),

=A(FVIFA,i,n)x(1+i)

4. i) Present value of Ordinary Annuity payment/receipts

PV =A[1- (1/(1 + i)n)]/i, ordinary annuity, ordinary annuity is payment/cashflow incurred at the end of
each period/interval

Interest factor; n=14,i=10%.....[1- (1/1 + i)n]/i=[1-(1/1+0.1)14]/0.1=7.36668....

ii)Present value of Annuity due payment/receipts

PV = A {[1- (1/(1 + i)n]/i}x(1 + i), annuity due, annuity due is the payments/cashflow incurred at the
beginning of each period/interval

PV=A[1-(1/1+0.1)14]/0.1]*(1+0.1)

Questions

A.Single cashflow

1.To what amount will the following investments accumulated?$5000 invested for 10 years at 10%
compounded annually?

FV=PV(1 +0.1)10

FV =5000( 1 + 0.1) 10 =

FV=5000(fvif,10%,10) =5000(2.5937)= ...from table 1

2.How many years will the following take? $500 to grow to $1039.50 if invested at 5% compounded
annually?

FV=1039.50

PV=500

2
1039.50=500(1 + 0.05)n

(1 .05)n=1039.50/500

(1.05)n =2.079

N=log2.079/log1.05 =15

OR

FV=PV(FVIF,5%,n)

1039.50=500(FVIF,5%,n)

2.079=(FVIF,5%,n)

N=15....table 1

3.At what annual rate would the following have to be invested?$500 to grow to $1,948 in 12 years

FV=1948

PV=500

1948=500(1 + i)12

(1 + i)12 =1948/500

=3.896 (interest factor)

Interest is 12% from the table.

What is i? 12% from table 1

OR

1948 =500(1 + i), solve with root 12...

4.What is the present value of the following future amounts? $800 to be received 10 years from now
discounted back to the present at 10%?

PV=800(1 + 0.1)-10

PV=800/(1 +0.1)10

PV=800(PVIF, i,n)

3
=800(pvif, 10%,10)

=800( 0.3855 )

=308.4 ...table 3

Note:FVIF=future value interest factor, PVIF=present value interest factor

B.Annuity

Note: FVIFA=Future value interest factor annuity, PVIFA=present value interest factor annuity

5.what is the accumulated sum of each of the following streams of payments? $500 a year for 10 years
compounded annually at 5%.

A=annuity

FV = A[( 1 + i)n – 1]/i

=500[(1 +0.05)10 -1]/0.05

OR

FV=A(FVIFA,5%,10)

=500(12.578)

=6289

6.what is the present value of the following annuities? $2500 a year for 10 years discounted back to the
present at 7%.

PV=A[1- (1/(1 + i)n)]/i

=2500[1-(1/0.07)10]/0.07

OR

PV =2500(PVIFA,7%,10)

=2500(7.0236)

=17559 multiply

4
7.what is the present value of a 10 year annuity due of $1000 annually given a 10 % discount rate?

PV =A{[1- (1/(1 + i)n]/i}*(1 + i)

=1000{[1-(1/(1+0.1)10]/0.1*(1+0.1)

OR

PV=A(PVIFA,10%,10)*(1+0.1)

=1000(PVIFA,10%,10)(1.1)

=1000(6.1446)(1.1)

=6759.06

8.you lend a friend $30000 which your friend will repay in 5 equal annual payments of $10000, with the
first payment to be received one year from now? What rate of return does your loan receive?

PV=30000
A=10000
N=5
PV=A(PVIFA,i%,n)
30000=10000(PVIFA,i%,5)
30000/10000=(PVIFA,i%,5)
3=(PVIFA,i%,5)
3 is between 3.1272 and 2.9906
..i% is between 18% and 20%
Interpolate:
18%...3.1272
i...3
20%...2.9906

>>>>>>>>>>>>>>>>>>>>>>>>> i=18% + [3.1272-3]/[3.1272-2.9906] x (20%-18%)


=19.86%

Note:

10% .... 1106.69

5
i....1100

11%...1051.43

IRR = 10% + [ 1106.69-1100]/[1106.69-1051.43] x 11%-10%

=10% + [6.69/55.26]x 1%

=10% + 0.1211%

=10.12% ( correct answer)

OR

PV =A[1- (1/(1 + i)n)]/i

=10000[1-(1/(1+i)5]/i

Find i

Question from Simon’s book: 1,4,10,11,st1,st2,st3

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